So you have an idea, and you are trying to decide if you should have a partner. It sure is less messy to launch your company on your own, but there are some perks as well:
- Have a person to share the workload, and most likely, you are not paying them.
- Have someone to bounce ideas off of
- Double the network and resources
- Hopefully, you are each bringing different expertise and experience to the business.
- You can lift each other up or carry the load on the days when you are down and out.
Picking a partner is one of the most critical decisions you will make. Partner fallouts are one of the main reasons startups don’t succeed. Below are some tips to make this process a bit smoother:
!) Try night to pick family members
2) Try not to pick friends
3) Make sure their skills complement yours and are not the same
4) Clearly lay out the percentage of equity each person will get before you start. It is not recommended that you both own 50/50 because there is a disagreement, which ultimately makes the decision.
5) Clearly define the roles and who is responsible for what. One of you should be CEO.
6) Create an operating agreement early on that details everything you need to have documented about the partnership and company
7) Make sure you have a cliff and waterfall in the agreement. A cliff allows you to retain the equity percentage if one of the partners leaves before a year. A waterfall is that the equity vests over a 4 or 5 year time; this is important because that if this didn’t exist and you have a falling out. One of the partners leaves with a significant % of the equity the company will never recover. This person will have equity forever without doing any future work. This leaves the company less likely to cause capital or hire other people.
8) make sure you have an exit plan in place at the beginning of how to buy one partner out. If there is a disagreement, you know how to invoke this agreed-upon way to sell the company. Typically, an outside person can value the company, and you buy the shares from the departing founder for the current value of the share.
Now that I shared the good, bad, the ugly to partnerships, let’s look at some of our Badass CEOs who have made it work.
Sister in laws Veronica Beard and Veronica Beard has created an empire by feeding each others strength. They never hold grudges and enjoy working with each other every day.
Kim Hehir and her sister created the new dog food brand, Brutus Broth. They even have their dad and brother in the mix. The company is stronger because of the strength in each of the members of the family.
Cote was founded by close friends when they realized there was a need for a clean nail salon experience. They have used each other to lift each other on bad days. Both have very different skills, so they leave it to the other to handle their expertise.
So having a partner that is a family or friend can work, but if it doesn’t, be prepared to have a changed relationship; investors do like investing in a family or friend-run businesses. There is too much risk that something goes wrong outside the industry that can affect the company.